Posts filed under “Data Analysis”

LEIs: Is the Economy Poised to Expand?

One of the reasons I push back against certain mainstream coverage of economic events is that through a combination of cheapness and laziness, they manage to report the spoonfed headline, which is misleading in its brevity.

For example: Yesterday’s Leading Economic Indicators (LEI) was reported as follows: 

The economy should expand modestly in coming months as a healthy job market continues to trump weakness in housing prices, a gauge of future business activity showed yesterday.

The Conference Board said its index of leading economic indicators rose a higher-than-expected 0.3 percent in May, lifted by rising stock prices, higher consumer expectations and the availability of jobs.

Economists said that jobs should continue to be plentiful, despite an unexpected surge in jobless claims last week. The Labor Department reported that unemployment claims totaled 324,000 last week, up 10,000 from the previous week, to the highest since mid-April.

It doesn’t take much digging through the LEIs to make you realize how superficial and misleading the coverage of this actually is.

To Preface this, note that the LEI has been indicating economic softness over the past few quarters. (disclosure: I am less than an ardent fan of the Conference Board who published the LEI). This recent softness shown has been despite the fact the LEIs been reformulated a few years ago — why? because it was showing too much economic softness due to the inverted yield curve; The new reconfiguration made it much harder to show weakness.

What was the big outlier in yesterday’s tick better than expected 0.3 vs 0.2 ?

Last month’s decline in jobless claims was courtesy of a seasonal adjustment due to last year’s Puerto Rico strike. Of course, that begs the question as to why last months seasonal adjustment is doing impacting the LEADING (as opposed to trailing) economic indicators.

There were other questionable aspects of LEIs. Building permits added 0.08 — despite the collapse in the NAHB HMI (which showed decreasing sales, traffic and permit apps) and last week’s reported decreased Housing Starts.

Consumer expectations added 0.05. Meanwhile, nearly every other poll shows consumers have been cranky. Seventy Percent of Americans Say Economy Is Getting Worse; Congress and the White House are at their lowest polling levels since Nixon. U of Mich Consumer Sentiment hit a 10 month low. But according to the LEI, consumers are upbeat.

Then there are the Capex and Manufacturing sectors. Despite the fact that Manufacturers’ orders for non-defense capital goods order are unchanged, the LEI report shows that manufacturing has rebounded — and capex is rebounding.

Bill King adds:

The Philly Fed index has been in decline for 3.5 years; so Street shills and permabulls have ignored it.  But one uptick and the shills are extolling its virtue.  And like the LEI, coincident Philly Fed components are soft.  ‘Current shipments’ fell 4.3; employment fell 7.3; average workweek is flat; ‘manufacturing  growth for next 6 months’ decreased 13.9, its lowest reading this year!  Future orders fell 11. The Philly  Fed says, “The outlook for growth diminished somewhat in June, although manufacturing executives still expect conditions to improve over the next six months.”  ‘Expect’ is now a euphemism for HOPE.

Where is the strength in the Philly Fed survey?  New orders increased 9.6 points.  Future shipments increased 3. Price indices declined a tad. Unfilled orders and delivery times declined; but they’re not a  definitive sign of economic strength.

The preponderance of component declines in the Philly Fed makes its jump to 18 from 4.2 unfathomable. As always, but even more so with economic opinion surveys, the devil is in the details/ components.



The same group of folks who have told us that Real Estate has bottomed, that sub-prime woes were contained, that there is no inflation, and that job creation has been robust are now claiming the soft spot, which they denied in its entirety is over.

Why am I releuctant to believe them?

(Now excuse me while I go flip some Blackstone Group . . . )


Expansion of Economy Is Expected to Continue
NYT, June 22, 2007

Category: Data Analysis, Economy, Employment, Psychology

Most Over/UnderValued U.S. Housing Markets

Yesterday, we learned that the NAHB Housing Market Index, a gauge of home-builder confidence, declined to its lowest reading since the 1991 recession:


Source: NAHB, Wells Fargo

Given the high inventory still around, its no surprise that all three components of index dropped: Single-family Home Sales fell to 29 (from 31); Traffic of Prospective Buyers droped to 21 from 22; Expected Sales for the next Six Months declined to 39 from 41.

The last time the HMI was this low was in the throes of the 1990-91 recession.

Rather than spend much time on this well-covered report, I want to draw your attention to a little followed report on Home Valuation. I stumbled across this extremely informative analysis, filled with great
info-porn maps (below) from Global Insight and National City

It looks at the regions of the country which have had the greatest home price appreciation and, by their measures, are the most overvalued.

First the good news: less homes are overvalued today than in 2005, when the study found 45% of all homes 23% of homes were overvalued by 45%.

Today, 14% of homes for sale are still overvalued — but by only 25%:


The following shows where the overvalued/undervalued homes are located:


That decrease in overvaluation comes as no surprise: The huge overhang of inventory = price decreases (see  below).

Thus, many of the over-valued regions are becoming a little less overvalued.

But, depsite the hopes of the bottom-callers, there is still a ways to go.


Full Study: House Prices in America – Q1 2007
A Global Insight / National City Corporation, June 2007

2006 Q1 PDF:


additional graphs, and a summary of the report, after the jump

Read More

Category: Data Analysis, Economy, Real Estate

Delving Deeper into the Inflation Issue

Category: Data Analysis, Federal Reserve, Fixed Income/Interest Rates, Inflation

There’s No Inflation — Except for Necessities

Category: Data Analysis, Federal Reserve, Inflation

A Tale of 2 Inflation Rates

Category: Data Analysis, Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation, Psychology

NAR and Housing Forecasts

Category: Data Analysis, Inflation, Psychology, Real Estate

Housing Inventory Build Worsens

Category: Data Analysis, Economy, Real Estate

More on NiLF & the Unemployment Rate

Category: Data Analysis, Economy, Employment, Federal Reserve

The Long Life Span of a Housing Downturn

Category: Data Analysis, Economy, Real Estate

The Return of NILF

Category: Data Analysis, Employment, Psychology